The first debt you pay off completely

Key points

• When several debts are open, the first one to finish completely is usually the smallest balance you can genuinely finish soonest, however an account charging an annual fee, or one you keep reusing, can jump the queue.
• Completely finishing one account changes practical things: there's one less due date to track, the repayment you were making becomes yours to redirect, and closing a fee-charging account stops that cost.
• A cleared credit card kept open for a specific purpose is completely fine, however an open limit with no specific restrictions is how balances come back.
• Even at a zero balance, an open credit limit is counted by lenders when they assess a future application.

If you're paying down several debts at once, progress mostly looks like numbers getting a little smaller each month. Everything is improving, however nothing is finished, and month after month of that can wear you down. The first balance you pay off completely is a different event: one account goes down to zero and stays there, one due date disappears, and the repayment that was covering it becomes yours to redirect.

So here we go through which balance to finish first when several are open, what actually changes when one goes down to zero, and whether to close or keep the account once it's cleared.

Which debt should you finish first?

In most cases it's the smallest balance you can genuinely finish soonest (provided the minimum repayments on everything else keep going out on time). A balance you can clear in 2 or 3 months means the first finish is close, and everything that changes when an account goes down to zero arrives sooner.

An account that charges an annual or monthly account-keeping fee is also worth moving up the list, because finishing it and closing it stops a cost that has nothing to do with the balance. So is an account you keep reusing: if a credit card or Afterpay account keeps collecting new purchases while you're trying to pay it down, finishing it – and deciding deliberately what happens to it afterwards – deals with the reason the balance keeps coming back.

If you've come across the debt snowball and debt avalanche methods and want to weigh one against the other, that comparison has its own place to be worked through properly. And if no balance can realistically be finished on what's left after essentials, the finishing order isn't the problem – your providers' hardship teams and the National Debt Helpline on 1800 007 007 are the better place to start.

What changes when a balance goes down to zero

Some of the change is practical. There's one less due date to keep track of, which matters more than it sounds if you've been juggling four or five of them across the month. If the account charged a monthly or annual fee, closing it stops that cost too. And the amount you were putting into the repayment each cycle is no longer committed: if that was $25 a week, it's ~$1,300 a year (illustrative) that can now go toward the next balance, or into a small starter buffer if you don't have one yet.

That freed amount needs a decision, because it may just as easily get absorbed into everyday spending. Put toward the next balance, it might bring the next finish closer, depending on what that balance is charging. Put into a buffer, it might be what stops the next surprise bill landing on credit. Either can make sense, but choose where the amount goes rather than letting it disappear without noticing.

The repayment you no longer have to make is easy to lose track of – redirect it deliberately, to the next balance or a starter buffer, before it gets absorbed into everyday spending.

The rest of the change is harder to measure. After months of balances going down a little at a time, the first account to hit zero can be the proof that the number really does get there. One of our members, Helen, closed the Afterpay account that had followed her since a Christmas spent under pressure, and her story shows what that first finish can look like.

Close the account or keep it?

The answer is either can be the right decision (it comes down to whether the account has a specific purpose from here, or is just staying open by default). A credit card you've kept for a specific purpose – covering emergencies while your buffer builds, or work expenses you're reimbursed for – is completely fine. An open limit with no specific restrictions, however, is how balances come back: the limit is still available on the worst week of the month, and the balance you just finished can build back before you've really decided anything about the account.

Before you decide, it's worth knowing that even at a zero balance, an open credit limit is counted by lenders when they assess a future application (it's credit you could draw on at any time). Whether that matters depends on what you're planning to apply for next, and how credit limits can affect you has its own place to be worked through properly.

If you do decide to close, the steps are short. Redirect any direct debits or subscriptions still attached to the account, so nothing bounces after it closes. Confirm the balance is actually zero (trailing interest can land after what you thought was your final payment), and check again a statement cycle later to be sure. Then ask for the closure to be confirmed in writing, so all the loose ends are tied off. The fuller routine for the weeks after a debt is paid out has its own place, however the steps above cover the essentials for closing a single account.

Pro tip: If your accounts are connected in WeMoney, the zero check is easier – you can see whether the balance has actually gone to zero, including any trailing interest, without logging in to the old provider.

Connecting your accounts in WeMoney shows every balance in one place, so you can pick the one you're finishing first, watch it go down, and see the day it reaches zero and stays there. Which one that should be is your call, and by this point you should have the main information you need to make it.

Sources

• Moneysmart: Get debt under control

This article provides general information only. It does not take your personal circumstances into account and is not financial, credit or legal advice. Consider your own situation and seek advice from a suitably qualified professional if you need it.